Audit Committee Chair Incentives to Use Voluntary Disclosure in the Audit Committee Report under High Agency Conflicts

• In Event: All Things Audit

Abstract

This study considers whether there is an association between the agency incentives of the audit committee chair and voluntary disclosure in the audit committee report. Prior audit committee report research suggests that a shift toward greater voluntary disclosure occurred after the passage of the Sarbanes-Oxley Act (Pandit et al. 2006).

Using agency theory and signaling theory, two incentives for voluntary disclosure by audit committees may signal their monitoring activity to shareholders: their reputation and their compensation structure. Studying a high litigation industry, there is initial evidence that audit committee chairs with a greater number of other public company directorships and audit committee chairs receiving greater cash compensation are associated with greater voluntary disclosure when serving companies with high levels of agency conflicts.

This study contributes to the literature by analyzing audit committee reports and providing evidence that audit committees may use their report to signal their unobservable monitoring effort.

Author

• Matthew Reidenbach, Pace University